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Green Real Estate Law JournalDiscussing current issues in construction and real estate law as they relate to sustainability, from the perspective of owners, builders, and design professionals. Published by Stephen Del Percio, B.Eng., J.D., LEED AP.

Last week, the AIANYS Statewide Advisory Committee and the American Council of Engineering Companies of New York sponsored the 2007 Annual Joint Session on Current Insurance Issues for Design Professionals. Speakers from a number of prominent insurance companies, including Lexington, Beazley, Zurich, CNA, Liberty, and XL shared their thoughts on the current state of the insurance industry, from a softening market for professional liability insurance, to comments that several panelists made regarding the insurance coverage implications of BIM and LEED for design professionals. Of particular interest to us here at gbNYC, the entire panel agreed that the standard of care for architects and engineers is “changing rapidly,” in large part due to the power of BIM technologies and the proliferation of USGBC’s LEED green building rating system.

First, with respect to BIM (which is discussed extensively in the context of sustainable design in the latest issue of eco-structure magazine), each insurer confirmed that their professional liability policies would cover errors and omissions in digital data, including BIM models. However, Lexington’s representative called BIM “just 3-D CAD” and warned the audience that the true insurance coverage implications for BIM projects have yet to play out.

In an interesting, though potentially sinister, twist, Beazley’s panelist also noted that coverage would not extend in the type of situation where a firm hosted a BIM model on its own server, the server was compromised by some sort of hacker, and the digital model was damaged. This is not a designer’s error or omission, so coverage would not be available to the architect or engineer who built the model. The same panelist noted that hidden risks are “key” with respect to BIM, and designers should guide themselves on such projects accordingly.

In terms of green projects, each of the panelists agreed that a design professional’s errors and omissions coverage will not cover claims by an owner brought in the event that a LEED project does not reach the agreed-upon certification level. Guarantees are where architects and engineers will get into trouble; these types of policies only cover professional negligence and not a designer’s guarantee of a particular sustainable outcome. Obviously, the key here is retaining green-savvy counsel that understands the LEED system and certification process, can effectively communicate these types of concerns to the owner on the design professional’s behalf, and at the same time negotiate contract language that reflects an acceptable level of risk for the designer to accept in connection with the project. Check out gbNYC’s previous posts on this critical issue.

Still, Zurich’s panelist rather ominously observed that his firm has “never seen a standard of care shift so quickly with so much media coverage and political backing.” He also noted that adding fuel to the sea change are owners who are “being told that sustainable design will help save them money. Claims start with violated expectations.” Insurance against professional negligence protects design professionals against claims that they did not perform up to their standard of care, which is defined as the level of skill of similar professionals in a similar location.

For example, similar professionals could be deemed to be LEED Accredited Professionals, expected to design projects and building systems that perform at a higher level. The danger here is that all architects and engineers- whether they are competent in green design practices or not- will be held to that elevated standard of care. If their designs do not perform as intended, or do not incorporate sufficient sustainable measures, it is possible that litigation could ensue. While professional negligence insurance does follow the prevailing standard of care, the fact that the insurance industry is observing a rapid increase in that standard- driven in large part by sustainability- should be of concern to design professionals.

Undoubtedly we will see these issues play out in a number of ways- both in practice and in commentary- over the course of the next few months. The legal profession, in cooperation with the design, construction, and real estate industries, must continue to explore these issues in detail and analyze the implications of both BIM and green building certification regimes during the course of 2008 in order to effectively assist stakeholders in successfully managing the hidden risks of green construction.

About Stephen Del Percio

Stephen Del Percio, B.Eng, J.D., LEED AP, is an experienced construction and real estate lawyer with over a decade of experience in the New York City construction industry. He is also a frequent lecturer and author on numerous industry topics, with particular emphasis on legal issues related to green building and sustainability. He holds a B.S. in civil engineering from Columbia and worked as a project manager for Morse Diesel/AMEC Construction Management on a number of construction projects in New York City prior to attending law school. He earned his J.D. at William & Mary, where he also served as the Managing Editor of the Environmental Law & Policy Review. You can contact him at stephen@gbNYC.com.